A decision support model for construction cash flow management

Khosrowshahi, F; Kaka, AP

Abstract

The excessive level of construction business
failures and their association with financial difficulties has
placed financial management in the forefront of many
business imperatives. This has highlighted the importance
of cash flow forecasting and management that has given
rise to the development of several forecasting models.
The traditional approach to the use of project financial
models has been largely a project-oriented perspective.
However, the dominating role of “project economics” in
shaping “corporate economics” tends to place the corporate
strategy at the mercy of the projects. This article
approaches the concept of cash flow forecasting and management
from a fresh perspective. Here, the use of forecasting
models is extended beyond their traditional role
as a guideline for monitoring and control of progress.
They are regarded as tools for driving the project in the
direction of corporate goals. The work is based on the
premise that the main parties could negotiate the terms
and attempt to complement their priorities. As part of this
approach, a model is proposed for forecasting and management
of project cash flow. The mathematical component
of the model integrates three modules: an exponential
and two fourth-degree polynomials. The model generates
a forecast by potentially combining the outcome of data
analysis with the experience and knowledge of the forecaster/organization. In light of corporate objectives, the generated forecast is then manipulated and replaced by
a range of favorable but realistic cash flow profiles. Finally, through a negotiation with other parties, a compromised
favorable cash flow is achieved. This article
will describe the novel way the model is used as a decision
support tool. Although the structure of the model
and its mathematical components are described in detail,
the data processing and analysis parts are briefly described
and referenced accordingly. The viability of the
model and the approach are demonstrated by means of a
scenario.

Citation

Khosrowshahi, F., & Kaka, A. (2007). A decision support model for construction cash flow management. Computer-Aided Civil and Infrastructure Engineering, 22(7), 527-539. https://doi.org/10.1111/j.1467-8667.2007.00508.x

• Journal Article Type: Article
• Publication Date: Aug 17, 2007
• Deposit Date: Dec 22, 2008
• Publicly Available Date: Dec 22, 2008
• Journal: Computer-aided Civil and Infrastructure Engineering
• Print ISSN: 1093-9687
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 22
• Issue: 7
• Pages: 527-539
• DOI: https://doi.org/10.1111/j.1467-8667.2007.00508.x
• Publisher URL: http://www3.interscience.wiley.com/journal/118514409/abstract?CRETRY=1&SRETRY=0